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Supply-chain digitization is a powerful concept that promises to improve key processes, but it shouldn't be focused on at the expense of a good risk-management program, says Bill DeMartino, general manager-North America with RiskMethods.
SCB: There’s a lot of talk these days about the digital supply chain. Where does that leave companies with regard to their risk-management strategies?
DeMartino: There’s a big effort to digitize, to achieve agility, efficiency and speed. It’s not happening as quickly as enterprises want it to, but at the same time, the world that they're operating in is going through massive change. Supply chains are longer. Suppliers are evolving in their capabilities and capacity. The more integrated the networks are, the greater the chances for disruption.
What we're seeing with risk programs is that they're being left behind. Companies are following the traditional mechanisms, meaning they’re conducting assessments and checking in with suppliers periodically, but they're not continuously monitoring them for risk.
SCB: It seems like only yesterday that this was top of mind for companies, in the wake of a lot of natural disasters. Everybody was talking about supplier risk. Have they forgotten about that?
DeMartino: It comes down to priorities. Companies have been distracted lately with commodity and tariff topics. The risk associated with getting the goods has become less visible because of those issues. Many companies have crisis-response teams and have gotten really good at reacting to disasters. The ideal situation, though, is where you minimize how often you need to engage those individuals, so that you're not flying parts around in helicopters.
SCB: Is there a way in which digitization is opening up companies to even greater risk? Is there something about the digital supply chain that creates new threats that we need to pay attention to?
DeMartino: A lot of solutions such as control towers and better forecasting are making decisions without considering this type of risk. They're thinking about capacity risk, but not physical risk — what’s going on geopolitically. Is the supplier going to be there in six months? Is it suffering some type of brand challenge? They’re making decisions in a way that’s not risk-aware. That’s a huge challenge for these enterprises.
SCB: What are some leading practices that companies can adopt in order to get back on the risk-management track?
DeMartino: A lot of it comes down to mindset. You create a business-continuity plan, everyone buys in, and then you put it in a desk drawer and no one knows where it is or what it does. Yet they're assuming that they're ready for risk. Leading companies, on the other hand, are making that plan an integral part of all their processes. So when I'm making a sourcing award decision, I consider risk. Are these two suppliers in the same flood plain? Are they right next to each other using the same port? You need to know this so you can make a risk-aware decision. You do the same thing when you optimize and locate your inventory. Real leaders use risk profiles as the basis of mandated actions within their teams. Meaning that if there's a certain level of risk exposure, then that individual's job is to take proactive action to mitigate the risk, either by awarding business to a new supplier or changing the configuration of the supply chain.
SCB: One aspect of the digital supply chain that seems especially applicable to the area of risk management area is the use of artificial intelligence for supplier selection, maintenance and contracting. Is that a current or future reality?
DeMartino: There’s a massive amount of information out there in media sites, the internet and social environments. All of it can provide insights into the state of your business partner. By applying artificial intelligence to the information that's out there, it can identify those few nuggets that are critical to my business.
SCB: You’re drawing on a lot of unstructured data that might escape the notice of a human.
DeMartino: That's exactly right.
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